Dick Rutan, a swashbuckling legend in the aviation community, was sitting in his office at the Mojave airport in the Southern California desert when two engineers walked in with a big idea. 

It was the spring of 2005, and Steven Weinzierl and Michael Fuchs had just developed a new piston engine that was both highly efficient and surprisingly quiet. While most small plane engines run on aviation gasoline — which is expensive and difficult to access — their innovative use of diesel made the engine more fuel efficient, cheaper, and longer lasting. Weinzierl and Fuchs were hoping Rutan, who piloted the first nonstop flight around the world — a nine-day feat in 1986 — would help them find funding.

Rutan, who has a soft spot for aviation startups, agreed not only to find investors for them, but also to test pilot the engine himself. 

“It was absolutely incredible,” recalls Rutan. “It was silent. I was so excited about this thing. I thought, at long last, an engine worthy of the 21st century.”

The next year, Weinzierl and Fuchs officially founded their engine company, Engineered Propulsion Systems (EPS), in New Richmond, Wisconsin, and it quickly became clear that the EPS engine was not limited to commercial applications. As the American use of drones was ballooning in the Iraq and Afghanistan wars — defense spending on unmanned aircraft rose more than 400 percent between 2000 and 2018 — the military also took an interest in EPS’s long flight times and quiet operation.

“There isn’t anything that can go and sit up in the air very efficiently like the EPS engine does,” notes Rutan.

In 2012, the U.S. Air Force awarded EPS a three-year contract for $2.9 million to develop their engine through the Rapid Innovation Fund, which is designed to help small businesses produce new technology to fill defense needs. It would later award EPS two more contracts, totalling $7.9 million, the second of which was scheduled to finish in October. EPS engines, the Air Force said, extended range and loiter time by up to 50 percent.

“Since this engine requires less fuel to fly the same distance, an aircraft or unmanned air vehicle could either carry more payload or fly a longer mission,” Capt. Randall Hodkin, the APTO Aviation Working Group lead, says. “Overall, if implemented, this technology has the potential to provide the Air Force a significant improvement in mission flexibility.” 

But despite the infusion of U.S. military money and interest, Weinzierl and Fuchs were engineers, not businessmen. Delays with Federal Aviation Authority (FAA) certification, board disagreements, and ballooning debts took their toll and the company filed for bankruptcy this summer. 

Its truly unique technology, meanwhile, has found a new home. 

Last April, a Hong Kong-based company called HyperMacher started advertising EPS engines on its (recently blocked) website. HyperMacher’s founder and chairman, Hang Wei, has been investing in EPS since 2014 through Windecker Aircraft, an American company that he bought in 2013. After a series of aggressive moves on EPS’s board, Hang was well-positioned to launch a “stalking horse bid” to take control of the company when it declared bankruptcy. 

While the deal is currently under scrutiny by the Committee on Foreign Investment in the United States (CFIUS), the U.S. agency that reviews foreign acquisitions for national security concerns, with a decision expected this week, Hang’s goal is to bring manufacturing of EPS engines to China.

HyperMacher also appears to be marketing its ties to the Chinese military. According to its website, HyperMacher’s president is an expert in military-civil fusion, the Chinese policy of adopting civilian technologies for military use; its head engineer worked for 23 years at China’s biggest aviation defense contractor; and HyperMacher’s “expert advisory team” is composed of two deans and an associate dean at Northwestern Polytechnic Institute, the Xi’an university that has been blacklisted by the United States since 2001 for its ties to the PLA.

“When the initial investment came in 2014, I didn’t perceive it to be dangerous, and the Chinese were buying so many U.S. aviation assets. They were just private Chinese investors trying to make an airplane,” says Weinzierl, the EPS co-founder who has since been pushed out. “But we never had a good idea of who Hang Wei really was. We should have done much better due diligence.” 

At first glance, Hang’s maneuvering appears to be the embodiment of America’s worst fears about U.S. technology being used to enhance China’s military. In a year full of headlines about alleged Chinese spies infiltrating American research institutions and even the halls of Congress, the idea that a little-known Chinese businessman would take over an advanced engine company at the behest of China’s military seems plausible. And given that EPS engines were built under U.S. Air Force contracts up until this year, it’s not hard to understand why they could be a target for China’s military. 

HyperMacher ticks nearly all the boxes for a cut-and-dry case of Chinese tech transfer. Indeed, according to internal board documents, an FBI counterintelligence unit tasked with preventing espionage against American companies visited EPS in September 2019 and questioned the company about their IP protection protocols. (The FBI told The Wire it could not confirm or deny the existence of investigations.)

But the reality may be a lot messier. EPS investors and executives who were pushed out of the company say they feel duped, but not by a foreign plot to acquire sensitive technology. 

“The impression I got was, this wasn’t a Chinese government attempt to steal a lot of U.S. technology,” says Bill Lawson, a major, early investor in EPS. “My gut feeling is that [Hang’s acquisition of EPS] was originally to get this technology for his airplanes, but it has since morphed into: How can we get $1 billion from this technology?”

Repeatedly, Hang’s American business partners — even those whose relationships with him ended in acrimonious business disputes — described him as nothing more than an ambitious entrepreneur. Their best guess is that HyperMacher’s recent defense posture is aimed at impressing and raising money from Chinese investors rather than a premeditated plan to enhance Chinese military drones.

And Hang Wei, in an interview last week with The Wire, insists he is a private businessman and has no ties to the military or government, and that he would not transfer EPS technology to the Chinese military. He adds that no EPS technology that is regulated by export controls would leave the U.S. without government approval.

“If the U.S. government says we can move production to China, okay, we might do that,” he says. “But if they say we can’t, then we won’t.”

The stuff in the news is that China hacks it or rifles through files. That is true, but they also buy it outright. Purchasing bankrupt companies and getting intellectual property legally is a common trend, which shows you can’t defend everything.

Dean Cheng, a senior research fellow at the Heritage Foundation

But as Washington increasingly draws red lines around Americans doing business with China, this distinction may not matter. In the past year, companies linked to the People’s Liberation Army have been labeled off limits for U.S. investment, and several Chinese tech firms have found themselves facing export restrictions because of American blacklists. 

American businesses, however — from Wall Street down to small start-ups like EPS — have shown no interest in disengaging from Chinese capital or the world’s biggest growth story. This, analysts say, is a potential loophole. 

“The stuff in the news is that China hacks it or rifles through files,” says Dean Cheng, a senior research fellow at the Heritage Foundation. “That is true, but they also buy it outright. Purchasing bankrupt companies and getting intellectual property legally is a common trend, which shows you can’t defend everything.” 

Indeed, the story of Hang Wei and the EPS engine is one of a charming, if ineffectual, businessman and a string of broken American businesses in desperate need of capital. The fact that it might end with American technology funded by the U.S. Air Force falling into the hands of China’s military is a surprise to everyone involved. 

THE CHINESE EAGLE

General aviation — the industry of small planes used by private and civilian pilots — lives and dies with FAA certifications, which means it is an especially fickle business. It’s not totally surprising, then, that Hang’s path to EPS was paved by another equally visionary but cash-strapped U.S. aviation company. 

In the 1960s, Windecker Aircraft designed the first “composite” airplane to be approved by the FAA — a feat that caught the U.S. Air Force’s attention. Designed by an oral surgeon and modeled after the human bone — which is hard on the outside and spongy on the inside — the plane’s unique innovation was to use fiberglass, not metal, which reduced its image on radar. In 1972, the Defense Department awarded Windecker contracts for the development of stealth technology. 

But by 1976, after a $4 million initial public offering and 300-person hiring spree, Windecker ran out of money. It officially shut its production down and remained moth-balled until 2006, when the founder’s son, Ted Windecker, decided to give it another go. He gathered all the assets together, including three of the original “Eagle” planes still in flying condition, wrote a business plan to reintroduce the Eagle with a more powerful engine, and went out looking for investors. 

Through a series of connections, he eventually met Hang Wei, president of the Beijing-based Jun An Investment Group, which advertised itself as having more than $600 million in assets. 

“He had almost no knowledge of general aviation, but he wanted to go into it because it was a burgeoning field in China,” recalls Ted Windecker. “He is a very nice person personally. I really liked him the first time I met him in 2011, and our wives became very close.”

But while Ted Windecker merely wanted to build a competitor to the Cirrus SR22, one the the world’s best selling private planes, which he planned to price around $700,000 in the U.S. market, Hang had a considerably more ambitious plan. He wanted to not only bring Eagles to the Chinese market but also build aeroparks — property developments around airfields — to support China’s budding aviation hobbyists. Hang agreed to pay $30 million in installments to take a controlling stake in the company, though Windecker claims he only ended up paying around one sixth of that amount.

“Hang was looking at being a one-stop shop for general aviation in China,” says Chris Redgrave, a former Windecker engineer who travelled across China with Hang to examine potential sites. 

Redgrave remembers being impressed by Hang’s connections with local government officials and power brokers that seemed above the weight class of a small company that hadn’t even started building planes. Several Windecker executives say that Hang often bragged of his political connections, including promising a meeting with Zhang Dejiang,¹Hang told The Wire he had been introduced to Zhang by a friend at the Foreign Ministry, but they did not have an ongoing relationship China’s vice premier at the time, who in 2013 would become the chairman of the Standing Committee of the National People’s Congress, one of the most senior roles in the Chinese leadership. Although he never delivered, the Americans didn’t doubt his network. 

Hang likes to describe himself as one of China’s first venture capitalists. Now 55, with close-cropped hair and salt-and-pepper temples, the Xi’an native had studied physics at Peking University — what he calls China’s Harvard. While many of his contemporaries went to work for the government or state-owned enterprises, Hang took a different tack. After getting his start at Intel’s China joint venture, he started his own import-export business for computers and then graduated into real estate and property development. 

Hang worked hard promoting Windecker to his Chinese contacts. He brought Windecker executives to lunch in Shanghai with a lead developer of China’s first commercial jumbo jet, the C919, and brought them to meet with Aviation Industry Corporation of China (AVIC) officials as well as the offices of the Civil Aviation Authority of China — China’s FAA equivalent.

“We were getting wined and dined by high-level officials wherever we went,” says Rick Winter, the co-founder and former chief financial officer of Windecker, adding that the opportunity to build Windecker planes was exciting for local Chinese governments. “They wanted to create jobs and facilitate the growth of communities throughout their provinces. Aviation helps business grow,” says Winter.

But with all the excitement, Hang soon tired of waiting for his American partners to get approval from the FAA, a prerequisite for his ability to sell Windecker planes in China. So, he started bringing in engineers from Chengdu; by the summer of 2015, he had pushed out all of the original management team, including Ted Windecker, who eventually sued²Ted Windecker’s lawsuit also alleges that Hang used Windecker to get a green card. The Wire was unable to confirm this, but U.S. Department of Labor records show the company brought at least eight foreign employees to the United States since 2016 and sponsored two U.S. permanent residency applications in 2019. Hang and his wife Chen Yubi, now the chief executive of Windecker, still own a $1.4 million home on Lake Norman, outside of Charlotte, per local property records. Hang for only paying him a fraction of what was promised and not providing funding for the Eagle.

“We found out that his real intention was to take the existing Windecker design made in 1969 to China, and to heck with the rest of the world. Doing the project here in the U.S. wasn’t important to him,” says Redgrave, who left the company soon after. Though the company remains operational in North Carolina, claiming over $150,000 in federal Covid-19 bailout funds last May, its manufacturing is mostly stalled, according to former employees.

Windecker still hasn’t received its coveted FAA license nor is the old Eagle model being produced in China. Instead, Hang seems to have turned his attention elsewhere. Before Ted Windecker left the company, he suggested Windecker planes might use the new, innovative engines from EPS. 

“He really became enamored with EPS,” recalls Windecker.

THE STALKING HORSE

Beginning in 2014, Windecker Aircraft started investing in EPS. At the time, EPS had only raised about $4 million from private investors and had about $6 million in U.S. Air Force contracts. Hang committed $13 million, although multiple sources told The Wire it took him until 2016 to deliver the money in full. 

As one of EPS’s largest shareholders, Hang frequently made it clear that he wanted to pursue a joint venture to produce EPS engines in China. The idea divided the EPS board members, so, in the fall of 2018, Hang used Windecker to make his move. After investing another $13 million into EPS, he converted Windecker’s notes into equity shares, giving him the deciding vote on EPS board elections and allowing him to stack the board with his allies. While Michael Fuchs was in favor of Hang’s takeover and the joint venture, his co-founder was not — Steven Weinzierl was forced out of the company in the first weeks of 2019.

Meanwhile, FAA certification was taking longer than expected and EPS was struggling financially. As debts came due, several American companies — such as Cummins, General Atomics, and Tracker Capital Management — expressed interest in investing in EPS, but balked when they learned Hang’s investments hadn’t been submitted for CFIUS approval and that he continued to insist on a joint venture. Weinzierl says the new board “pushed all those bidders away by a lack of communication.”

“Mr. Hang is willing to fund EPS to allow us to get FAA certified and into production,” board minutes from June 2019 noted. “However Mr. Hang . . . will require approval of the [joint venture] agreement in order to go ahead with any investment.”

The board eventually signed off on the China joint venture. And Hang’s “stalking horse bid,” a term that refers to an initial bid on a debtor’s assets that then sets the terms for what future bidders can bid on, was successful, pending CFIUS approval.  

The stalking horse bid also includes investment from Yang Lie, an executive in Jinhui Equity Investment, an investment management company with branches in Zhejiang and Tibet. If CFIUS approves the bid, he would be a shareholder in EPS alongside Hang.

“It happened right under our nose,” says Dick Rutan, the original test pilot who encouraged his contacts in the aviation industry to invest in EPS. “And when we found out [about Hang’s plan to take over EPS], we were already halfway over the cliff.”

TRUE GOLD

The HyperMacher website is plastered with diagrams of Windecker planes and EPS engines. It features a photo of Hang and Michael Fuchs at Edwards Air Force Base and, in Chinese, suggests a partnership with Textron, the U.S. defense contractor that owns Cessna. 

HyperMacher executives in China, meanwhile, have been busy touting the technology.

“There’s a saying in the aviation world: ‘a generation of engines decides a generation of planes,’” Zhang Jian, the company’s vice president, told Chinese media in Shanghai last June, a month before EPS formally filed for bankruptcy. In the same interview, Zhang called EPS engines “revolutionary” and equated Hang’s round-about business journey — including his failed Windecker aeroparks — to the visionary success of Alibaba’s founder: “Remember when Jack Ma borrowed 2 million yuan from some big entrepreneurs, and everyone called him a ‘scammer’ for it. We believe that true gold fears no fire.”³Hang told The Wire that although Zhang presented himself to media as HyperMacher’s vice president and was working for him to find the company contracts, he was not an employee and had no formal title.

In the year since it was established, HyperMacher entered into discussions with local governments in Henan and Jiangxi provinces about setting up production bases. Hang says both deals fell through, and the company does not have any contracts. Hang also insisted that his company had not transferred any technology funded by the U.S. military to the People’s Liberation Army.

The day after The Wire reached out to executives listed on the HyperMacher website for comment, its website was taken offline. In an interview with The Wire, Hang Wei insisted that he hadn’t authorized the site and that it was made without his approval by a partner who was working to find contracts for HyperMacher but had no formal role at the company. Hang added that information on the site suggesting military connections was not accurate.

“I’m not interested in the military aspects of this technology,” he says from Beijing. “There are strict rules about that. I’m just involved on the civil side.”

When asked why the site would market the military ties so heavily, Hang says that military-civil fusion is a hot topic in China right now and that it often enables introductions and helps get business with state-owned enterprises. But he insists that, because it is an American company, he wouldn’t allow EPS to provide technology to Chinese military users. 

“I have no government background,” he says. “I don’t work for an SOE. I’m an entrepreneur. I don’t need to do military-civil fusion. There’s no need. We can sell this product for civil use.”

Many of the Americans who worked with Hang agree that the military marketing is either an effort to make profits on the back of China’s $95 billion defense sector, or a ploy to appear tied to China’s military in order to raise money from investors. Either way, they say Hang’s motivation is to follow the money — wherever it leads.  

“The one thing I know is that Hang Wei is out for Hang Wei,” says Chris Redgrave, the Windecker engineer. “He’s not out there to serve the Party.”

The nature of the current U.S.-China competition, however, makes it increasingly difficult to disentangle the interests of Chinese businessmen from the interests of the Party. 

“The Communist Party has explicitly stated that they want to develop their engine and propulsion technology, and I don’t know of any case of a private company that has been able to keep their proprietary information from the government when it requests access,” says Oriana Skylar Mastro, a fellow at Stanford University’s Freeman Spogli Institute for International Studies who studies China’s military. “Chinese national security law says they have to share the tech with the Party when the Party wants it.”

So, how dangerous would it be if the Party decided it wanted EPS technology? That’s the issue currently being debated by CFIUS, the interagency body comprised of nine Cabinet-level officials. In closed-door sessions, the officials decide how to advise the president on national security implications of foreign acquisitions, and CFIUS will decide as early as this week if Hang’s bid for EPS is detrimental for U.S. security. 

Analysts say it could go either way. While most everyone familiar with the technology marvels at its elegance and design, the strategic importance of EPS engines to the great power struggle varies wildly based on who you talk to. To some, EPS is a small potato and not worthy of such scrutiny. 

“Should we be worried? My short answer is: no, it’s nothing to worry about for now,” says Peder Andersen, a former International Trade Analyst for Aerospace for the U.S. International Trade Commission. “Several aircraft diesel engines are available from at least Western Europe, so if a buyer is interested in one of ours, more power to the U.S. company.”

The only way that we can maintain our open doors and be as inviting as possible to foreign capital, including from China, is to make sure we have regulatory regimes in place to make sure we safeguard our national security.

Adam Lysenko, an associate director at the Rhodium Group

But others see the EPS deal as emblematic of a larger pattern. While losing control of EPS technology itself may not be crippling, the cumulative effect of technology transfer happening over and over again may help build the People’s Liberation Army into a formidable opponent for the U.S. military. The Pentagon views the PLA as a “near-peer competitor” that might already be stronger than the U.S. in the Western Pacific.

“As a matter of principle,” says Alanna Krolikowski, a professor at Missouri University of Science and Technology who studies innovation in China and the United States, “it should be concerning to U.S. taxpayers that technologies developed with public funds could be acquired — at fire sale prices, no less — by foreign entities, especially entities based in a country deemed a strategic ‘competitor.’” 

According to Adam Lysenko, an associate director at the Rhodium Group, which researches Sino-American capital flows, “working with the Department of Defense is not a nonstarter” for CFIUS. He notes that several recent aviation deals involving China have cleared the process and says the very fact that the EPS deal is under review is a sign that the system is working as designed.

“The only way that we can maintain our open doors and be as inviting as possible to foreign capital, including from China, is to make sure we have regulatory regimes in place to make sure we safeguard our national security,” he says.

But even if CFIUS decides against Hang’s bid, the fact that the deal progressed this far is concerning to some observers. EPS may never have even filed for CFIUS review if a few shareholders hadn’t forced the company’s hand by publishing notices about the impending deal in several industry publications, according to shareholders. And some shareholders told The Wire that Hang — and by extension HyperMacher — could already be in possession of EPS’s technology, especially since Hang has so many allies on the board. 

A spokesperson for the Air Force told The Wire that it decided to stop pursuing EPS’s technology this fall after “protection of Intellectual Property became a concern.” 

If CFIUS denies Hang’s bid, EPS will likely go into Chapter 7 bankruptcy, freeing up U.S. or other buyers to bid on pieces of EPS. If that happens, it’s still not clear whether the Air Force will just pick up where it left off. And for those who know and love the technology most, this is the real tragedy.  

“It is excellent technology,” says John Grady, an EPS investor and engineer. “Our government and defense department should be all over it since it is a critical enabling factor in drone flight time. I think they’d be clueless to let this pass to others.”

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